Recording telephone conversations?

1. Recording telephone conversations? Stephen Thurston, Director

2. FSA announce that it will be mandatory to record telephone conversations and other electronic communications from March 2009 • Who will be affected • What core technology is available to support this regulation to ensure effective compliance • Recording of Mobile Phones • Analytics - Market Detect

3. Regulatory Changes • FSA beefing up current guidance to rules for recording • Regulators looking more closely at incidents of; • - Market manipulation • - Suspicious incidents • - Cases of insider dealing • New proposals require voice recording of; • - Client orders • - Agreeing, negotiating, arranging transactions in equities, fixed incomes & derivatives

4. Regulatory Changes • New regulations require firms to; • - Record & maintain voice recordings for 3 months • - Make them easily accessible • - May also impact text, fax and email • PCI regulations are starting to influence recording “rules” e.g. secure recording architecture, encryption • As FSA becomes more aware of technology solutions available higher expectations will be placed on firms

5. Financial Service Products affected • Exchange Traded Equities • Off Exchange Traded Equities • OTC • Exchange Traded Options • Futures • Commodities • Hedge Funds • Spread Betting Instruments

6. Individuals affected • Compliance • System Security • Agency Brokers • Sales people • Sales Traders • Principal Dealers • Corporate Finance • Research • Managers • Client Facing

7. Considerations of Call Recording • Unlikely that regulators will be in abeyance for too long on this issue • - Firms should forward plan for call recording projects • - Budgeting early may reduce overall costs • Recording acts as a deterrent to criminal activities • Recording supports HR – bullying or employee breakdowns leading to disputes can be ring-fenced before court involvement • Time and legal fees can be saved in disputes • - Disputes with agents or clients can be quickly diffused if recording can prove the exact position

8. Recording Mobile Communications R

9. Goal to enable recording of calls and text into and out of mobile phones without the need for user intervention.

10. Issues so far • User has to initiate recording • Organisation has had to take special mobile sims or change mobile provider • Special equipment is needed to allow each user to be individually recorded – where there might be many hundreds of users this is extremely expensive

11. …outgoing calls

12. Record incoming calls… An identifier is added to the incoming call from the gateway or PBX. » If the identifier is not present call is rejected and routed to the gateway or PBX . »Call is received at Gateway and recording starts. »Caller’s CLI is passed through for identification.

13. …incoming calls 2If call not recognised rejected to gateway. 3 Routing gateway Telco 1Third party dials Mobile Number 4Recording

14. Router Department LAN Option 1 – Network based recording Recordings in OPEX Network 1 2 Secure Internet access to call recordings Call recordings downloaded over VPN to company’s private network OR

15. Option 2 – Recording on your own systems All calls to or from mobiles automatically routed to corporate PBX Calls re-routed by PBX to destination number Recordings stored on local corporate call recorder

16. Record incoming text » Userreceives SMS as normal. » Phonedetects and sends copy to OPEX Hosting. » Copyhas original source number added to body of message by phone software for identification purposes. » User/administratoraccesses messages through the same interface as voice messages.

17. …incoming text OPEX Hosting

18. Record outgoing text » Usercomposes and sends SMS as normal. » Phonedetects and sends copy to OPEX Hosting. » Copyhas original destination number added to body of message by phone software for identification purposes. » User/administratoraccesses messages through the same interface as voice messages.

19. …outgoing text OPEX Hosting

20. Summary »No specialized equipment to host. »Anymobile network - no need to change supplier. »Keep own mobile number. »Web basedaccess for recordings, or delivered to your ownsecure database. »Fully automatic- User cannot forget to record.

21. Analytics Market Detect

22. What is Detect? • Detection techniques • Summary

23. What is Detect? • Designed to detect anomalies in large volumes of transaction data in real time. • Basic transactions can be enriched using data from multiple sources such as blacklists or geographical data. • Enriched data is stored and can be mined. • Alerts can be triggered from rules engine or risk engine. • Comprehensive alert routing system. • Case management

24. How Detect Creates Alerts • Events are split into streams called channels- e.g. accounts, merchants, caller IDs, stock IDs. • Large numbers of computations are made on each channel’s history as it unfolds. • User defined • System generated • These measurements trigger alerts via: • User rules • Risk models

25. Architecture • Layered design • Very fast and scaleable • Platform Independence • Configurable • Easy installation

26. Alerts • Flexible alerting • Operator free • On-screen • Email • SMS • Audit trail of alerts and user processing

27. Techniques • Deterministic • patterns (business rules) • Statistical • Supervised • Machine learning • Unsupervised • Peer groups • Link analysis (networks) • Sequence matching

28. Market Detect

29. Information Enrichment • Back Office transactions can be linked to: • Geographical information • Commodity/security classification • Transaction type classification • Client database • PBX/Turret caller IDs can be linked to: • Country • SDN code locations • Employee records • Client database • All calls and trades can be linked to: • Time of day and week categories • Holidays calendar

30. Patterns (rules) • Rules are generally for monitoring events over rolling time windows, which can be seconds to weeks long. • Eg: Alert account if total traded in previous 2 hours exceeds £10K • Alert stock if ratio of buys to sells exceeds R in last 24 hours. • Rules should be very quick to implement or edit using the GUI and can be tested prior to being activated.

31. Peer Group Analysis • Tracks derived measures for a historically similar cluster of brokers (stocks or accounts) and alerts when a member of the cluster appears to ‘break rank’. • “Breakpoint analysis” can also be carried out for individuals if transactions are normally frequent and regular.

32. Peer Group Examples • Disproportionate fees. • Seller IDs whose sell quantity rise up suddenly. • Seller IDs whose sell quantity fall suddenly. • Buyer IDs whose buy quantity rise up suddenly. • Seller/buyer IDs who suddenly starts a large volume of trade. • Stock IDs where trade volume or trade quantity increases suspiciously. • Stock IDs with sudden raise or fall in price or having same (or linked) buyer and seller.

33. Sequence Matching • Suitable for sequence matching? • Front-running • Shadowing Order from I to buy S A B & C Buy S Buy for I executed Stock S rises Sequences could be used to constrain link analysis which would otherwise be intractable.

34. Link Analysis • Discover sets of individuals, accounts or transactions related by hidden intermediaries. Eg: • All brokers who have traded a certain stock in a given period. • All accounts which have benefited by a certain stock rise • Shadowing- discover sets of proxy accounts tracking known investor. • Investor pools playing ‘pass the parcel’ to manipulate prices.

35. Summary • Financial Crime high on the Corporate Agenda – Estimated at £2 Trillion in Financial Fraud Worldwide. • Challenge is for Compliance to provide the surveillance for irregular trading behaviour. • Leading Edge analysis tools for Trading Data. • Real Time detection of unusual trading behaviour which may indicate fraud. • Analyse relational behaviour. • Alerting and case management for potential frauds. • Limit Financial exposure and deter Fraud.

36. Thank you!